LightSquared Inc.’s plan to reorganize will improperly benefit lenders including JPMorgan Chase & Co., which will own all of the wireless-spectrum company’s assets after bankruptcy, Dish Network Corp. (DISH) Chairman Charles Ergen said.
The plan was devised in talks where LightSquared’s controlling shareholder, Philip Falcone, “made it clear that he was interested in using the plan to enrich himself and equity holders,” Ergen said yesterday in a bankruptcy court filing in Manhattan. Falcone stated that he wanted to protect three parties: his investment firm Harbinger Capital Partners LLC, Fortress Investment Group LLC (FIG) and JPMorgan, Ergen said.
SP Special Opportunities Inc., an Ergen fund that invested $1 billion in LightSquared debt, made the allegations following an eight-day trial on whether LightSquared can reorganize under a plan that puts Ergen’s debt behind other lenders and equity holders to be repaid. In yesterday’s filing, the fund dissected how much JPMorgan, Fortress, Harbinger and another investor, Melody Capital Advisors LLC, stand to benefit compared with what money they put at risk.
“Mr. Falcone made it clear in numerous e-mails that the primary purpose of the plan and its subordination or disallowance of SPSO’s claims was to enrich Mr. Falcone and Harbinger,” Ergen said. Closing arguments in the trial are planned for May 5 and 6.
Falcone has said he had a fiduciary duty to advocate for Harbinger’s investment.
JPMorgan (JPM) affiliate SIG Holdings Inc. currently holds all of LightSquared’s series B preferred stock. The New York-based bank also has put $360 million into LightSquared through operating loans.
The investments may be worth “hundreds of millions of dollars,” and JPMorgan will own all of LightSquared’s equity and assets after the bankruptcy, Ergen said. JPMorgan also may benefit from LightSquared tax-loss benefits estimated at more than $2 billion, according to the filing.
LightSquared, based in Reston, Virginia, sought court protection after the Federal Communications Commission blocked the company’s wireless service, saying it might interfere with global-positioning-system navigation equipment. The company listed assets of $4.48 billion and debt of $2.29 billion.
The case is In re LightSquared Inc., 12-bk-12080, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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